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U.S. Soybeans Lose In Four-Crop Competition For Acreage?

Nationally, there’s a tight, four-way competition for row-crop acreage going on, and soybeans may be the crop that gains the fewest overall acres, says Chad Hart, Iowa State University (ISU) agricultural economist.

“For now, beans look like they may be losing the bidding battle for 2011 acreage,” says Hart. “Cotton could probably gain some acreage over soybeans in the southeast, and wheat might gain acreage over beans in the Dakotas. Cotton markets are experiencing record-high prices right now and wheat prices are hovering near the $10/bu. mark.”

Yet in Iowa, and much of the Midwest, soybeans will likely hold up fairly well to competition for more corn acres, says Hart. “There should be a fairly lucrative economic advantage to growing more corn in 2011 in the Midwest, but acreage in Iowa will probably be divided between corn and soybeans in pretty close proportions to what farmers planted last year,” he says. “Overall, farmers in Iowa will probably plant more total corn and soybeans acres this year by using land that recently came out of the Conservation Reserve Program or that had been planted to oats or alfalfa last year.”

For Iowa, the projected profit margins for both corn and soybeans are extremely positive right now, he points out. “Total projected costs for raising both crops are in the $200-300/bu. range. For corn, it will likely cost close to $4/bu. to produce, and prices are up near $6/bu. here. For soybeans, the cost to produce is about $9.45 to produce, and prices are in the $12/bu. range.”

Projected profit margins have been tracking quite a bit higher for corn than soybeans recently and will likely stay that way through planting time, says Hart. Two factors that might alter those projections would be any significant change in soybean purchase patterns from China and/or a sudden increase in oil and energy prices.

“China is again the main factor that could alter soybean prices,” notes Hart. “As long as China continues to buy soybeans at fairly strong levels, U.S. producers will have an incentive to increase their acreage. Recently, however, we have seen a little weakness in their U.S. soybean buying patterns, with a cancellation of one sale and their willingness to go to Brazil to buy cheaper soybeans, when they can find them.”

Like a smart shopper, China will go where it can to secure the best deal on commodities, says Hart. “For soybeans, China is not even close to producing all they need,” he says. “So, they depend on the world market.”

South America is the biggest challenger to U.S. soybean sales to China, and Brazil could possibly have record soybean production this year, points out Hart. On the other hand, Brazil’s increased production likely won’t be enough to offset Argentina’s decrease in production from recent drought conditions, he adds.

Normally near self-sufficient in wheat and corn production, China may need to import more of these two crops than they normally would in 2011, says Hart. “With corn, they have made one, 15-million-bushel buy from the U.S., which is not a big buy, but it’s a signal that more could come later,” he says. “When China gets into a market, they tend to be the biggest player in the market. China is the second largest producer of corn in the world.”

Global wheat production woes may also spur on an increase in Chinese demand for U.S. corn, says Hart. “Winter wheat production in China is looking pretty rough, just like our winter wheat is looking pretty rough,” says Hart. “The Chinese use wheat for both food and feed. So, if they’re short in wheat, then they’re short of feed grain, which opens up a wider door for U.S. corn imports into China.

“Also, Russian winter wheat doesn’t look good this year, just like last year,” adds Hart, “and there’s been flooding in Australia and Pakistan, which have decreased wheat production in those areas. So, global wheat shortages like these could continue to increase the demand for U.S. corn.”

For a longer-term outlook in commodity prices, however, there’s also the question as to whether La Niña weather patterns will hold longer than expected and have a hand in reducing crop production in the U.S., notes Hart. For corn, there is also the question of how increasing oil and energy markets might hinder future input costs and profitability.

“For corn, the situation is a little different today than what we were seeing during the summer of 2008,” says Hart. “Back then, we had $140/barrel crude oil costs and $7/bu. nearby corn futures prices. Now we have $85/barrel crude oil costs, but we still have close to $7/bu. corn futures prices.

“So, we’re not yet seeing the pressure on energy prices now like we did then, which helps keep farm input costs lower,” he says. “Still, all that could change, especially if what’s happening with the unrest in the Middle East affects oil production in Saudi Arabia or Iran or oil shipments through the Suez Canal.”